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7 Dividend Stocks Paying More Cash in 2012 - views
BALTIMORE (Stockpickr) -- It’s earnings season, and dividend hikes are continuing to flow in for investors this quarter.
Dividend announcements and earnings season go hand-in-hand each quarter, as companies make the logical step of going from talking about their profits to whether they’ll be using those profits to pay shareholders. Dividend payouts are particularly important in 2012, after a year when owning stocks that pay dividends meant a 53% increase in total investment returns.
This week, a total of 41 companies announced hikes in their cash payouts to shareholders, contributing to an increase in dividends by 19% vs. the quarter one year ago. That’s proof positive that companies are deploying their record cash reserve to increase investor returns in 2012. That’s a very good thing since ultimately, those dividends can have a huge impact in total investment returns.
Over the last 36 years, dividend stocks have outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, according to data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.
That’s why we pay close attention to the firms that are shoveling more corporate cash to shareholders each week. With that, here’s a look at seven of the stocks that hiked payouts in the last week.
Time Warner Cable
Time Warner Cable (TWC) provides cable television, internet, and phone services to a network that reaches nearly 27 million homes and businesses spread throughout major geographic areas of the U.S. The firm has had a relatively limited operating history as an independent company following its 2009 spin off from Time Warner (TWX), but that hasn’t stopped the firm from establishing a hefty dividend payout.
Last week, Time Warner Cable announced a 16.67% dividend hike, bringing the firm’s yield to 3%.
With nearly a quarter of U.S. householders in TWC’s operation regions, the firm has massive scale that few alternatives can offer. Like most cable operators, TWC’s network is relatively modern and benefits from significant capacity over coaxial cable -- something that firms like Verizon (VZ) and AT&T (T) are having to spend mountains of capital on to achieve for their own competing networks. The combination of size (which is crucial for negotiating favorable rates for channels) and dry powder (being used on the company’s $3 billion acquisition of Insight Communications) makes it particularly attractive.
Net debt is high but manageable right now. A large cash flow generation engine in TWC’s business model should keep the firm’s dividend payout flowing to shareholders for the foreseeable future.
$12.5 billion manufacturing firm Parker-Hannifin (PH) has a diversified product list that includes everything from fluid control systems to air conditioners to flight control systems. That varied set of offerings has helped the Cleveland-based company recover relatively quickly from the recessionary headwinds it faced during fiscal 2009 and 2010.
One of Parker-Hannifin’s biggest keys to success is its distribution. The company has a network of more than 12,000 locations, a geographic footprint that competitors can’t match. Coupled with the firm’s wide breadth of manufacturing capabilities, PH has a lot to offer customers who are looking for a combination of production and support prowess.
Recently, cost has been a big focus for Parker-Hannifin, and a major factor in the firm’s wide margins in 2011. As top line growth starts to come into play again, investors will want to see that cost management remain intact
Last week, management announced a 5.41% increase in the firm’s dividend, increasing its quarterly payout to 39 cents. Parker-Hannifin currently yields 1.89%.
Parker-Hannifin shows up on a list of Hedge Funds' Best Picks for 2012.
Independent oil exploration and production company Marathon Oil (MRO) is another name that increased its dividend payouts to shareholders at the end of last week. Marathon announced a 13.33% increase to its quarterly payout on Friday, bringing it to 17 cents per share. That’s a 2.17% payout at current price levels.
With a market capitalization of $22 billion, Marathon pales in comparison to integrated supermajors, but it’s not competing with behemoth firms for a share of the market. But while scale isn’t a determining factor in the S&P business, cost is -- and Marathon’s costs are middle of the road at best. Where the firm has the most upside is in its shale portfolio, which still has room for unproven reserves to beat analysts’ expectations.
Another big upside catalyst could come from natural gas prices, which have been under pressure for a while now. If MRO can reap more cash for the natural gas that comes out with the firm’s oil, investors would be able to expect considerable margin expansion. In the mean time, depressed prices aren’t hurting this stock’s valuation.
While MRO’s independent energy exposure is attractive, there are higher-yield alternatives for exposure to this sector right now.
Health care and medial office REIT HCP (HCP) has had a strong year -- while shares are up approximately 11% in the trailing 12 months, that number slingshots to around 15% when the firm’s hefty dividend payout is factored in.
And those returns are only getting higher. HCP announced a 4.17% dividend increase last week, bringing its quarterly distribution to a 4.86% yield at current prices.
HCP owns a real estate portfolio that’s spread throughout five different segments: senior housing, skilled nursing, medial offices, lab space, and hospitals. That diversified tenant base means that leases are less likely to be adversely impacted by a major industry headwind, like healthcare legislation. At the same time, this REIT’s financial structure means that it’s a strong example of an income-generation instrument rather than a direct play on the real estate market – investors should be fans of that fact.
While REITs’ legal income distribution requirements often leave them with relatively light capital backstops, HCP is in solid financial shape. That stability should help to secure the firm’s large dividend payout, particularly when coupled with its diversified health care positioning.
Power management company Eaton (ETN) is faring well in 2012. Already year-to-date, shares of the firm have rallied more than 13%, offsetting some of the downward pressure that shareholders had to deal with in 2011. Last week’s dividend hike brings Eaton’s dividend yield up to 3% per annum.
Eaton develops and manufactures power management and control systems used by commercial and military users, ranging from powertrain systems for cars to aerospace fuel systems. While that exposure to transports and industrials hasn’t spared the firm from downside in the last few years, that customer base has been beneficial to Eaton more recently as industrial spending turns the corner. That’s especially true in emerging markets, where Eaton is putting increasing focus right now.
From a technical standpoint, this stock looks especially attractive. I talked about Eaton in "5 Big Stocks to Trade for February Gains," where we looked at the throwback this stock was staging off of $47 support.
Now could be a good limited-risk buying opportunity.
Hershey (HSY) is well-known for being the largest candy maker in North America, but investors shouldn’t be discounting this stock’s sweet dividend right now. Hershey is the name behind a massive portfolio of confectionary brands that includes Reese’s, Kit Kat and Twizzlers in addition to its popular namesake products. In total, the firm boasts more than 80 brands sold in 60 countries.
Unfortunately, the exposure to most of those countries is minimal -- only around 15% of sales come from markets outside of the U.S. While the company does do business in China and India, two particularly attractive markets for growth right now, it hasn’t been able to generate material sales numbers from either as of yet. Because of saturation in the U.S. market, Hershey will need to revamp its international efforts if it wants to continue to court growth-conscious investors.
In the meantime, the major upside in this stock is the fact that the U.S. market is a mature, large consumer of candy products. That factor creates large cash flows for Hershey, some of which the company passes off to shareholders, in turn.
On Wednesday, the firm announced a 10.14% increase in its quarterly dividend, bringing it to 38 cents per share. That’s a 2.47% yield at current levels.
As of the most recently reported quarter, Hershey was one of the top holdings of Renaissance Technologies.
AvalonBay Communities (AVB) is the best-in-breed housing REIT on the market right now. This $13 billion firm is one of the largest apartment REITs in the country, with approximately 47,000 units spread throughout the U.S. Last week, management announced an 8.68% dividend hike that brings the firm’s yield to 2.59%.
One critical difference between AvalonBay and the commercial REITs most investors are familiar with is the type of lease that housing trusts are able to offer up. Because residential leases are dramatically shorter and have tighter consumer protection regulations, they don’t have the same attributes that make most REITs more an income generation tool than a play on real estate.
Even so, AVB’s continual ability to drive dividend payouts has been impressive. In a niche where capital requirements are high and profitability has been challenging, this stock has turned out some solid numbers.
Part of AVB’s success has come from its geographic footprint. The firm’s properties are focused around metropolitan areas where demand for housing is high and home ownership remains unaffordable for many. While true income investors should relegate their REIT ownership to higher-yielding commericals, those in search of diversification would do well to include this stock in their REIT portfolios.
To see these dividend plays in action, check out the Dividend Stocks for the Week portfolio on Stockpickr.
And if you haven't already done so, join Stockpickr today to create your own dividend portfolio.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.